How Silicon Valley is Changing the Fintech Space
By Evan Singer for the Entrepreneur
Known for consumer sweethearts like Apple and Facebook, Northern California is now tackling a less sexy though infinitely important task. Silicon Valley is bringing change to outdated financial systems through advanced financial technology (FinTech). A line of business based on using software to provide financial services, FinTech companies are generally startups founded to disrupt established financial systems that have been slow to embrace online technology. Examples include companies like Square, PayPal and Credit Karma. Traditional bank lending has been called “low hanging fruit’ for FinTech disruption, ripe for change with global FinTech investment set to more than double by 2018. Silicon Valley-based companies, like SmartBiz, are working to instigate much needed changes in small business bank lending.
The decline of small business bank lending.
One of the ways traditional banking has not helped Americans is by clamping down on small business lending after the economic crisis of 2008. Small businesses are truly the backbone of American economic strength, providing opportunities, bringing innovative products and services to the marketplace and creating jobs. For many small businesses, their success depends on access to credit and with most banks not lending to small businesses, many businesses have been forced to turn to expensive alternative options. When entrepreneurs don’t have access to low cost funds, small business growth can screech to a halt. The SmartBiz team knew there had to be a better way and worked to bring low, single digit rate SBA bank loans back to small businesses while transforming the traditionally slow and difficult application, underwriting and funding process.
Bank lending and technology.
If a small business owner is lucky enough to secure a single digit interest rate loan by going directly to a traditional bank, the process is likely lengthy and clunky. And many times, a business will go through a long application process with a bank just to be declined after several months of back and forth. FinTech companies, like SmartBiz, are increasing approval rates for SBA loans with an online marketplace and streamlining the bank lending process by incorporating online automation.
The increase in small business alternative lending.
As banks left small business lending in 2008, some alternative FinTech lenders stepped in to fill the void. These new entrants offer speed though with high rates and fees. Combined with short terms, such expensive funding can be disastrous and trap entrepreneurs in a debt spiral.
Traditional banks partnering with FinTech.
FinTech and bank partnerships, like the ones that SmartBiz and its bank partners have developed, enable small businesses to now easily secure SBA loans with 6.25 percent rates and 10 year terms. One of the reasons traditional banks shunned small business lending is that processing costs are high. For example, it costs banks about the same to facilitate a $200,000 loan as a $2 million dollar loan. The SmartBiz technology platform solves this problem by enabling banks to underwrite and originate quickly and profitably. In the end, banks that leverage SmartBiz can achieve success-defining benefits such as access to new small business customers, lower SBA loan processing costs and increased profitability. Small businesses are thrilled too; the likelihood of getting an SBA loan increase with the SmartBiz marketplace, they’re able to secure the best loan product on the market and their speed to funding is as fast as a week after completing their online application.
The good news for small business owners is that it’s getting easier and faster to get low cost SBA bank funding via FinTech and bank partnerships. Unfortunately, the expanded FinTech lending landscape includes some lenders with high rates and short terms. SmartBiz recommends that entrepreneurs research their lending options in detail. Seek out articles from reputable publications like Entrepreneur. Look for unbiased customer reviews from sites like TrustPilot. The more informed you are going into the loan process, the more likely you will be to get the best loan to help strengthen and grow your enterprise.
First appeared at the Entrepreneur